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Traditional music CD sales on the rebound

Shipments of music CDs in the first half of 2004 increased for the first time …

It is starting to get tougher and tougher for RIAA statisticians to align CD sales numbers with allegations that piracy is killing the music business. Peer-to-Peer network traffic is still going strong even after thousands of RIAA lawsuits against alleged music pirates. Now comes word that CD music shipments in the first half of 2004 have increased 10.3% over the same period in 2003 (see also here). The RIAA still wants to make a case that piracy is hurting their sales, but their own statistics show that changes in music listening habits, internet single sales and other economic factors are playing a great part in the music sales upturn. As with any set of statistics, cases can be made for many different points of view and can lead to diverging statements like these:

"Better technology and an improvement in quality are also pushing more people to legitimate sources. Many consumers always wanted to do the right thing, but just couldn't. And now that's changing," said Michael Gartenberg, vice president and research director at Jupiter Research in Washington, D.C.

"Piracy, both online and on the street, continues to hit the music community hard, and thousands have lost their jobs because of it," Mitch Bainwol, chairman and chief executive officer of the RIAA, said in a statement.

Coupled with an analysis of RIAA shipments and actual music sales tracked by Nielsen/Soundscan, music sales could actually be booming. According to the RIAA, shipments were down in the first quarter of 2004 compared to 2003. If that is true, a 10.3+% increase in CD shipments occurred entirely in the second quarter of 2004. On the other hand, this data may reflect that retail store inventory has reached a comfortable level and the increase in shipments is now reflecting actual sales in the retail channel. Even some numbers the RIAA is showing as proof that piracy is hurting sales can be seen in a different light.

Despite the gains, top-selling albums -- among the most heavily pirated -- remained significantly down. Compared with 2001, top 50 albums shipped 16.7 percent less than in the first six months of 2004. And the top 100 albums shipped 19.7 percent less.

The advent of online music download services (not available in 2001) has exposed music listeners to a wider variety of music than the mega-stars the RIAA like to promote. This statistic could be used as proof that the music listening public has moved away from the big hits and are opening their ears to a wider variety of music. One can argue that because of this, the overall music industry is in a much healthier shape now than it was in 2001. The traditional top heavy music industry is starting to share the wealth amongst more and more artists. One could further argue that the increase in sales of non-top 100 albums could be directly attributed to exposure to the larger pool of artists available on music download sites and (gasp) from P2P networks (i.e. try before you buy the physical item).

There is one last piece of data that was revealed on Wednesday that make a strong case that economic factors (rather than piracy subpoenas) are leading to the turnaround.

Overall, CDs and all other audio and video music products shipped to retail increased 8.5% -- 289 million units vs. 267 million since last year. The dollar value of those shipments rose 4.5%.

I have been keeping track of the RIAA statistics for the past several years, but even though the RIAA has not made a complete listing of their midyear 2004 stats available on their website, the numbers they have released (like the one above) are telling. During the 2000 to 2003 music sales downturn there has been one stat that many news outlets have overlooked. Even though sales have been dropping, the average unit price has risen (revenue/shipments). In other words, the loss in revenue has always outstripped the drop in CD shipments. In the first half of 2004, units shipped increased by 8.5% while their dollar value rose only 4.5%. I estimate (from previous year's data) the average unit price of these shipments have dropped about 3.7 percent (~US$0.50) compared to the first half of 2003. This would be the first year since 1999 that the average unit price has decreased. That year saw the RIAA post their highest overall music shipments and revenue to date. Coincidence? I'll let you decide.

The RIAA would want you to believe that lawsuits against people that are listening to their music are leading to a sales rebound. The situation is more complicated than that, and it is likely that sales have actually rebounded in spite of the announced lawsuits. The music sales landscape has changed with the advent of music download sites that have exposed a wider variety of music to listeners. This has been reflected in a shift from mega-star music sales to lesser known bands, but the biggest factor in this turnaround could be the first unit price decrease in music since 1999.